Getting Cars Off the Road: The Cost-Effectiveness of an Episodic Pollution Control Program

Ground-level ozone remains a serious problem in the United States. Because ozone non-attainment is a summer problem, episodic rather than continuous controls of ozone precursors are possible. We evaluate the costs and emissions reductions of a program that requires people to buy permits to drive on high-ozone days. We estimate the demand function for permits based on a survey of 1,300 households in the Washington, DC, metropolitan area. Assuming that all vehicle owners comply with the scheme, the permit program would reduce nitrogen oxides ( $\text{ NO }_{\mathrm{x}}$ ) by 42 tons per Code Red day at a permit price of $75. Allowing for non-compliance by 15 % of respondents reduces the effectiveness of the scheme to 33 tons of $\text{ NO }_{\mathrm{x}}$ per day. The cost per ozone season of achieving these reductions is approximately $9 million (2008 USD). Although year-round measures, such as the Tier II emissions standards, might be preferred on benefit-cost grounds, an episodic permit system might be considered as an interim measure before the Tier II emissions standards are fully reflected in the vehicle fleet.     

Pricing policy of a U.S. telephone company

This paper analyses the pricing policy of a major U.S. telephone company in 1967. A mathematical programming model was used to calculate the prices per telephone call on each of three representative routes in each of four periods of the day which would be implied by a variety of alternative maximands (consumers' plus producers' surplus, profit, sales units, sales revenue), under a variety of alternative profit constraints and assuming capacity to be either fixed (at 1967 levels) or variable. Cost and demand data were supplied by several telephone company officials, and supplemented by published material. Sensitivity analysis was carried out on the demand elasticities. A total of one hundred versions of the model are reported on. Our major conclusions include: (i) Maximising consumers' plus producers' surplus subject to a pair of minimum profit constraints provided a good approximation to 1967 policy. (ii) There is perfect discrimination between large and small users for interstate toll calls. (iii) The effect of the state regulatory commission was to keep down the price of intrastate toll calls at the expense of interstate toll calls. (iv) As alternatives to regulation, perfect competition, if attainable, would increase benefits by about $100 million whereas perfect monopoly would reduce them by $300 million per annum, within the area of the company's operations.     

LIMITING U.S. OIL IMPORTS: COST ESTIMATES

The Energy Modeling Forum recently compared ten world oil models. This paper examines the costs of curtailing growth in U.S. oil imports based upon the supply and demand responses to price in six of these models. The analysis estimates direct resource costs over the 1989–2010 period from U.S. results for aflat and a rising price case spanning an $18 per barrel difference by the year 2000 and beyond. To provide a balanced perspective, the paper also includes estimates of some potential benefits from import-reduction policies. These benefits include smaller wealth transfers during a disruption and lower oil prices without disruptions. While keeping future oil imports at today's level appears to be quite costly, the results here indicate that less aggressive import-reduction programs offer some opportunity for economic gain.     

VALUING HEALTH EFFECTS: THE CASE OF OZONE AND FINE PARTICLES IN SOUTHERN CALIFORNIA

This study presents a conservative estimate of the health benefits that would result from attainment of the federal ozone and fine particle (PM_2.5) standards in the South Coast Air Basin of southern California. A three‐stage approach is used that links pollution exposures to adverse health outcomes to economic values. The annual value of the aggregate health benefits approaches $500 million (with a range of $295–$646 million) for ozone and exceeds $21 billion (with a range of $12.85–$34.22 billion) for fine particles. Such results are useful to regulatory agencies and other policy makers when evaluating the merits of various air pollution reduction strategies. (JEL Q51, Q53)     

How efficient are national environmental standards? A benefit-cost analysis of the United States experience

This paper summarizes the results of the first systematic, geographically-specific efficiency assessment of the U.S. experience with national environmental standards and with alternative approaches to establishing those standards. This ex-post evaluation assessed the net benefits that resulted from EPA's regulation of conventional air and water pollutants from the pulp and paper industry between 1973 and 1984. The paper compares the benefit-cost efficiencies of the three dominant regulatory approaches: technology, ambient, and benefits. Unlike previous studies, which assessed benefits and costs on a national basis, the study estimates both costs and benefits on a facility-by-facility basis. The analysis shows how the efficiency of national environmental regulations can vary dramatically at local levels. The authors conclude that the technology-based standards for water pollution management failed as an efficient environmental strategy. The costs clearly exceeded the benefits in the aggregate, as well as in the specific in most situations. Benefits exceeded costs at only 11 of the 68 mills investigated. The ambient based standards for air pollution management succeeded as an environmental strategy in the aggregate, but succeeded in the specific for only one-third of the mills (22 of 60 mills). The benefits-based standards for air pollution management also succeeded in the aggregate as well as in the specific for about one-half of the mills. Benefits exceeded costs at 29 of the 60 mills investigated. The results of the study point to two major conclusions. First, a regulatory policy that is based on some measure of environmental results, either ambient-based or benefits-based, will be more efficient than a policy that ignores environmental results. Second, truly efficient policies for reducing environmental risks require pollution mitigation decisions that take into account local conditions. These include not only the changes in local ambient conditions, but also the number of people who will benefit from pollution reduction decisions. This latter conclusion suggests that national environmental standards per se may be inefficient.Dr. Luken is currently Senior Environmental Advisor to the United Nations Industrial Development Organization (UNIDO) in Vienna, Austria. He is on leave from the U.S. EPA where he was Chief of the Economic Analysis and Research Branch of the Office of Policy, Planning and Evaluation (OPPE). Mr. Clark is President of Environmental Economics Associates of Traverse City, Michigan. He was formerly Chief of EPA's Cost and Economic Impact Analysis Branch in OPPE. The views expressed are those of the authors and do not represent the views of the U.S. Environmental Protection Agency.     

Technological change under residual risk regulation: The case of coke ovens in the U.S. steel industry

An engineering-economic model is used within a dynamic setting to determine the least cost mix of investment and import activities as the U.S. steel industry faces successively tighter controls on coke oven emissions over the next 10 years. In response to Maximum Achievable Control Technology (MACT) standards proposed for 1995, U.S. steel producers would likely export their toxic pollution by importing 6 million tons of coke per year. About 4 million tons of coke oven capacity is retrofit and about 1 million tons of annual coke consumption is replaced by new iron technologies, such as Corex. The Lowest Achievable Emission Rate (LAER) standards proposed for 1998 roughly double the coke oven retirements estimated to occur under MACT. Coke imports also are substantial but are no higher than under MACT because the additional time allows the industry to invest in more coke-saving blast furnaces and in new less toxic coke-making technologies, such as the Jewell process. The LAER standards in conjunction with higher capital costs, however, force coke imports to more than 8 million tons per year and sharply increase imports of semi-finished steel. Such a situation could exacerbate existing disputes on international steel trade.The authors are associate professor, instructor, and graduate student, respectively. This research was performed under the sponsorship of the U.S. Department of Interior, Bureau of Mines Distinguished Young Scholar Award Administered by Oak Ridge Associated Universities for the Bureau of Mines. Naturally, the usual disclaimer applies.     

"SMART" GUNS: A TECHNOLOGICAL FIX FOR REGULATING THE SECONDARY MARKET

A "personalized" or "smart" gun will not fire unless it is being used by an authorized individual. Such guns have the potential to reduce the negative externalities of gun ownership while preserving the benefits. Ongoing efforts to develop practical "smart" designs make it timely to consider regulations that would favor or mandate them in the market for new guns. The likely consequences would depend on the design details, in particular the costs of transferring the "key" to firing such guns. With an "ideal" design, transferring the key would require special equipment that could be monitored by appropriate authorities. The result would be to block thefts and other transfers of such guns in the secondary market and, in the long run, reduce access by individuals who are proscribed from possessing a gun. Personalized guns, therefore, could make existing firearms regulations more effective and reduce the social costs associated with gun misuse. Though personalized guns have advantages relative to standard guns in a wide variety of situations, some of the potential benefits of personalized guns could be captured through alternative policy measures.     

Dynamic economic analysis of marine pollution prevention technologies: An application to double hulls and electronic charts

Marine pollution associated with shipping accidents has resulted in a Congressional mandate for double hulls on tankers in U.S. waters. In this paper, we formulate a social planner's problem using optimal control theory to examine the relative cost-effectiveness of double hulls and alternative pollution prevention technologies, and the optimal installation strategy for such technologies. The model encompasses the costs and benefits associated with shipping operations, damage to the marine environment, and investment in each technology. A computer simulation of the model is used to evaluate investment strategies for two technological options: double hulls and electronic chart systems. Results indicate that electronic charts may be a far more cost-effective approach to marine pollution control.     

WELFARE LOSS OF WETLANDS DISINTEGRATION: A LOUISIANA STUDY

This study estimates the loss in welfare of projected Louisiana coastal wetlands disintegration. Various programs have initiated costly projects to terminate this disintegration process. But can these projects succeed, and will their benefits exceed their costs? This study addresses the benefits issues and estimates reductions in incomes and consumption opportunities and increases in costs that would be avoided if restoration and enhancement projects are successful. Estimated welfare losses that would be avoided do not include non-user and lifestyle losses, which may be very important, and they do not include the costs of dismantling coastal infrastructure. These exclusions make the estimates of this study minimum estimates of welfare losses. Future economic welfare losses represent a 1990 present value in a range between $5.9 and $24.3 billion, depending upon discount rates and whether low or high loss estimates are used. In order to make these estimates more meaningful, the implied wetlands values were calculated on a per acre basis. These values ranged from $8,437 to $15,763 per acre.     

U.S. OIL DEMAND AND CONSERVATION

Recent history has lent casual support to three popular theories about U.S. oil demand: (i) U.S. oil consumption is very insensitive to changing oil prices, (ii) non-price conservation has reduced U.S. oil demand, and (Hi) U.S. oil consumption falls more when oil prices rise than it rises when oil prices fall. Together, these theories suggest that one could hold oil consumption constant without much economic sacrifice. The authors' econometric evidence does not support these theories. This evidence indicates that U.S. oil consumption is fairly responsive to price changes over the long run, but with a considerable lag. Sharp oil price increases—or an equivalent policy action—would be needed to hold oil consumption constant during the 1990s.     

Technology forecasting for commodity projections: A case study on the effect of substitution by aluminum on the future demand for copper

This paper deals with the possible use of technology forecasting in commodity projection and, to a lesser extent, in resource allocation for research and development. As a specific example, technology forecasting was used to estimate the effect of substitution of copper by aluminum on the future demand of copper in 1980 and 1990. and to identify a future technology for extracting aluminum from clay; a technology which could be especially useful in the developing countries. Basic predictions were made for functional units of the major common end uses of copper and aluminum in 1980 and 1990, including electrical conductor and heat exchanger applications. The amounts of copper required in each application in 1980 and 1990 were estimated for three substitution scenarios. In the first of these, substitution is assumed to take place according to a logistic type function, resulting in a predicted copper demand of 3.70 million tons in 1980 and 4.91 million tons in 1990. In the second scenario, substitution is assumed to progress at past linear rates, resulting in a predicted copper demand of 4.3 million tons in 1980 and 6.41 million tons in 1990. In the third scenario, no further substitution is assumed, resulting in a predicted copper demand of 4.81 million tons in 1980 and 7.77 million tons in 1990. The effective date of the technology monitoring that produced these predictions is July 1974, and the predictions are current as of the date. The then current forecasts for copper demand made by the U.S. Bureau of Mines and other agencies using compound growth and regression models, corresponded to the unlikely scenario of no further substitution, and therefore needed correction in view of these anticipated technological changes.     

Contingent Valuation and Lost Passive Use: Damages from the Exxon Valdez Oil Spill

We report on the results of a large-scale contingent valuation (CV) study conducted after the Exxon Valdez oil spill to assess the harm caused by it. Among the issues considered are the design features of the CV survey, its administration to a national sample of U.S. households, estimation of household willingness to pay to prevent another Exxon Valdez type oil spill, and issues related to reliability and validity of the estimates obtained. Events influenced by the study's release are also briefly discussed.     

Carbon mitigation costs for the commercial building sector: Discrete–continuous choice analysis of multifuel energy demand

We estimate a carbon mitigation cost curve for the U.S. commercial sector based on econometric estimation of the responsiveness of fuel demand and equipment choices to energy price changes. The model econometrically estimates fuel demand conditional on fuel choice, which is characterized by a multinomial logit model. Separate estimation of end uses (e.g., heating, cooking) using the U.S. Commercial Buildings Energy Consumption Survey allows for exceptionally detailed estimation of price responsiveness disaggregated by end use and fuel type. We then construct aggregate long-run elasticities, by fuel type, through a series of simulations; own-price elasticities range from −0.9 for district heat services to −2.9 for fuel oil. The simulations form the basis of a marginal cost curve for carbon mitigation, which suggests that a price of $20 per ton of carbon would result in an 8% reduction in commercial carbon emissions, and a price of $100 per ton would result in a 28% reduction.     

Oil shale and climate policy in the shift to a low carbon and more resilient economy

Policy makers worldwide are recently debating options to implement an effective climate policy that would put a cap on green house gas emissions. At the same time, investors are carefully evaluating the profitability of unconventional fossil fuels such as shale oil. To enhance the understanding of the impacts of a climate policy such as the American Clean Energy and Security Act of 2009, on oil shale production – and vice versa – we have customized an integrated assessment model, the Climate and Energy Assessment for Resiliency model for Unconventional Fossil Fuels to the U.S. Western Energy Corridor. Our analysis indicates that while the bill would increase the production cost of oil shale, the industry remains highly profitable in the longer-term, generating a potential profit of about $10 to $16 billion per year by 2040 at 2.5 million barrels per day. These results suggest that the oil shale industry may comfortably face the enactment of a carbon policy, albeit with some caveats. Furthermore, while its potential economic impact on non-compliant industries may be severe, it would generate mounting profits for those achieving energy efficiency gains, thereby increasing the profitability of energy efficiency investments.     

CONSERVED ENERGY SUPPLY CURVES FOR U.S. BUILDINGS

Comparison of nine conservation supply curves for electricity shows that fully implementing a series of energy efficiency measures will result in annual saving of 734 billion kWh (BkWh). This is 45 percent of 1989 U.S. building sector electricity use of 1627 BkWh and represents a $29 billion saving. When translated to units of conserved carbon dioxide (CC CO₂), this annual saving is 514 megatonnes, which is 10 percent of the total 1989 U.S. carbon dioxide (CO₂) emissions from all sources. Implementing additional fuel efficiency measures would result in further potential saving of 5·2 quads of fuel (natural gas and oil) per year, or another 300 megatonnes of CO₂, at a net savings of $20 billion. Fuel switching (replacing electric resistance heat with on-site natural gas combustion) would produce annual saving of another 74 megatonnes of CO₂ at a net saving of $6·8 billion. Thus, total CO₂ saving from these combined efficiency measures are 890 megatonnes at a net saving of $56 billion per year.     

An assessment of two environmental and economic benefits of ‘Cash for Clunkers’

This research aims to provide a more comprehensive, life cycle accounting of two categories of environmental and economic benefits associated with the $3 billion US “Cash for Clunkers” vehicle scrappage program. First, using a life cycle emissions methodology developed in Lenski et al. (2010), we find that about 29,000 metric tons of criteria pollutant emissions were avoided, for a benefit of about $23 million; avoided carbon dioxide emissions, by comparison, provided a benefit worth $90 million. Second, we compare the market value of scrapped vehicles to the rebates provided, calculating the consumer surplus or “gift” to participants to be up to $2 billion (about $2000 to $3000 per vehicle). This is significantly more than offered in previous vehicle scrappage programs, and suggests opportunities to get more environmental and economic “bang for the buck.” Finally, these two categories of benefits are found to be heavily concentrated geographically around urban centers. About 2% of US counties (50 counties) received 50% and 30% of the aggregate benefits from avoided criteria pollutant emissions and consumer surplus from the rebates, respectively.     

International Transport of Captured \hbox {CO}_2: Who Can Gain and How Much?

If carbon capture and storage (CCS) is to become a viable option for low-carbon power generation, its deployment will require the construction of dedicated CO₂ transport infrastructure. In a scenario of large-scale deployment of CCS in Europe by 2050, the optimal (cost-minimising) CO₂ transport network would consist of large international bulk pipelines from the main CO₂ source regions to the CO₂ sinks in hydrocarbon fields and saline aquifers, which are mostly located in the North Sea. In this paper, we use a Shapley value approach to analyse the multilateral negotiation process that would be required to develop such jointly optimised CO₂ infrastructure. First, we find that countries with excess storage capacity capture 38–45 % of the benefits of multilateral coordination, implying that the resource rent of a depleted hydrocarbon field (when used for CO₂ storage) is roughly $${\$}1$$ per barrel of original recoverable oil reserves, or $${\$}2$$ per boe (barrel of oil equivalent) of original recoverable gas reserves. This adds 25–600 % to current estimates of CO₂ storage cost. Second, countries with a strategic transit location capture 19 % of the rent in the case of national pipeline monopolies. Liberalisation of CO₂ pipeline construction at EU level could eliminate the transit rent and is shown to reduce by two-thirds the differences between countries in terms of cost per tonne of CO₂ exported. Reaching agreement on such liberalisation may be politically challenging, since the payoffs are shown to be strongly divergent across countries.     

The Oil Spill Process: The Effect of Coast Guard Monitoring on Oil Spills

In this paper we evaluate the effectiveness of Coast Guard enforcement efforts in reducing oil spills. We consider how vessel owners behavior changes with increases in the probability of being monitored. We also study the effectiveness of the performance standards adopted by the Coast Guard in 1984. We conclude that: (i) Coast Guard enforcement effort works to decrease both the frequency of oil spills and the spill size, even though in this latter case the effect is smaller; (ii) the expected fine has no effect on either the frequency or size of oil spills; (iii) few spills from non-monitored transfers are detected; and (iv) the implementation of the new performance standards increases the effectiveness of the Coast Guard monitoring efforts.     

ECONOMIC INCENTIVES FOR DIETARY IMPROVEMENT AMONG FOOD STAMP RECIPIENTS

Most Americans need to consume more fruits, vegetables, and dairy products. This need is particularly acute among low‐income individuals. This study examines the cost‐effectiveness of two economic policies that use alternative policy levers available within the Supplemental Nutrition Assistance Program (formerly Food Stamp Program) to increase consumption of these under‐consumed foods. Data from three nationally representative surveys are used to estimate demand elasticities, marginal propensity to spend on food out of food stamp benefits, and consumption amount of and spending on under‐consumed foods among food stamp recipients. Results suggest that a 10% price subsidy would curtail consumption deficiencies by 4%–7% at an estimated cost of $734 million a year. When the same $734 million is used to finance food stamp benefits, consumption deficiencies are predicted to narrow by only 0.35%–0.40%. (JEL C34, D12, Q18)     

Economic Valuation of Ozone-Related School Absences in the South Coast Air Basin of California

Air quality in the South Coast Air Basin of southern California has improved significantly over the past decade, although pollution levels continue to exceed health-based standards on a significant number of days. This study estimates the decline in ozone-related school absences in southern California over the 1990s, reported as differences in the number of days of respiratory illness–related absences, the number of days of all illness-related absences, and the economic loss to families of those absences. The study reports differences in the number of these effects for the intervals 1990–92 to 1997–99, for rolling three-year intervals to 1997–99 across that period, and for expected future reductions in ozone. The baseline population is the cohort aged 5–18 residing in the South Coast Air Basin in 1998. For the interval 1990–92 to 1997–99, the economic value of fewer school absences ranges from $156 million annually to more than $330 million annually, with a best estimate of $245 million. This represents a benefit of nearly $75, on average, for every school-age child in the region. (JEL I10 , I12 , Q2 , Q25 )